In a previous blog, I questioned whether what some are calling a notable decline in competition in many US industries has impacted competitive intelligence. I think it may have. Recently, The Economist magazine presented some additional indications that this decline in competition is widespread, has numerous causes, and a variety of impacts:

In one column, the author looks at several papers dealing with concentrated ownership of US public companies. The author indicates that these papers reach some curious (my word) conclusions:

“From [the perspective of big asset managers that take large stakes in nearly all of the dominant firms in an industry], the best way to generate portfolio returns might be for rivals to treat each other with kid gloves.”

“[Institutional] fund-appointed board members could simply refrain from urging conservative CEOs to compete aggressively, or CEOs might anyway conclude that their big shareholders would prefer peace and profits.”[1]

In a special report in the same issue, Peter Thiel, a co-founder of PayPal is quoted as saying “Competition is for losers”, evidently referring to the giant firms in Silicon Valley.[2]

In the same piece, a side bar notes, sadly, that, “American business history has been defined by periods of intense competition followed by long periods of consolidation. This digital revolution is likely to repeat that pattern, but on a global scale”, riffing on a quote that after the Civil War, American business was “‘ten years of competition and 90 years of oligopoly”. [3]

Does all of this now, or will all of this soon, impact CI? I think so. Do you?

Why don’t more firms use dedicated competitive intelligence personnel or teams? That is complex issue, with at least 3 different trends contributing to it.

The first, as readers of this blog know, is the rise of the DIYers. That is, the increase in the number of managers and executives who, officially or not, with or without training, develop some or all of the competitive intelligence that they need for their product/service development, management, and sales responsibilities.

The second and third, to my mind, arise out of changes in the competitive structure in the United States, at least.

The second one is what has been called “co-dependency” among larger firms in the technology industries[1]. As one author put it, “tech’s big guns must play nice with one another”. That is, the major tech companies are so intertwined, even interdependent in some areas, that they no longer compete vigorously, here I stress vigorously, on every front. If there is less competition, do they feel less need, or no need, formal for competitive intelligence activities?

The third is a related trend, but not limited to the technology industries. That trend is the notable decline in competition in many US industries[2]. One recent analysis argued that the presence of “steep earnings” in many industries may indicate monopoly positions or at least the stifling of competition through regulations and tax rules, influenced by (expensive) lobbyists in those sectors. Let’s go a little further – if there is a monopoly position or a near monopoly position, there is no competition, real or threatened. So why have any CI? Against whom is it directed?

Another analysis indicates that, in many US industries, consolidation has produced oligopoly or near-oligopoly positions. Now, again dig down deep in your economics lessons. What are the characteristics of an oligopoly? It is a market dominated by just a few sellers or suppliers. And what does that mean for that sector? In some cases there can be excessive, even explosive, competition, leading to very low prices and the eventual destruction of a firm. But, in most cases, there is a tendency towards cooperative behavior – overtly or covertly. Sometimes that cooperation can violate the anti-trust laws.[3] Falling short of that illegal activity is the growth of a tendency to live and let live.

In either of these two cases, there is no longer pure competition. So why should the desire to aggressively utilize something as “competitive” as CI be present?

[3] There may be a tendency for those in these markets to avoid conducting any CI on the mistaken basis that such activities could be considered as anti-competitive, because they involve tracking a competitor and its pricing. The actual legal line is colluding with competitors with respect to pricing, etc.

One ongoing question is whether/when to go outside for competitive intelligence versus DIYing it. I am not going to get into the whole issue here, but I just want to deal with two aspects of it, familiarity versus diversity.

In the case of an overload, going to a source which is closely related to or even connected to you is often preferable. What do I mean by that? It could be a CI unit which serves a different part of your firm, or an outside firm which includes individuals who used to work for your firm, or which has worked for your firm so long it is almost another department. The familiarity speeds the collective effort. And in some cases, the extra effort may be invaluable.

Getting past the issues of your overload, an outside CI firm also possesses what we call expertise. Or as a Nobel Prize winner put it (good credential, no?), “An expert is someone who knows some of the worst mistakes that can be made in his subject and how to avoid them.[1]” So, if you have a knotty problem, an outside firm may be a valuable source of expertise you presently lack or can never replicate.

Remember, when you are seeking expertise as opposed to extra minds, you should be looking for something/someone, well, different from you. That means that closely related is not a benefit. As noted in The Economist recently, “There is…evidence to support the commonsense idea that encountering people with different ideas and different perspectives can boost creativity.”[2]

Sometimes we have to justify CI to others. Why we have to do that is not at all clear. We do not have to justify cleaning the car’s windshield so we can see oncoming traffic. We do not need to have someone argue with us that having a smoke alarm in our home to warn about a fire that could kill us is a good idea.

But, if you have to make a case for CI, let me give you some ammunition. The first is from a recent speech by Cliff Kalb, former head of CI for Merck, the pharma giant. The second is an insight from the gospel of “disruptive competition”. The third is a look at some past multi-company studies.

Here is a report of what Kalb told the International Association For Intelligence Education about the value of CI:

“Proctor & Gamble saved $40 million by applying the results of competitive benchmarking. NutraSweet did not spend $38 million because CI revealed its competitors posed no threat. General Motors cut $100 million from manufacturing costs from competitive benchmarking. Merck increased revenues by $300-$400 million as a result of CI team actions which outmaneuvered the competitor.”[1]

Let’s look at CI’s value from another perspective. Here is a recent analysis of what Professor Clay Christensen’s “disruptive competition” involves:

“[I]ncumbent companies can fail despite being well run and serving their existing customers as assiduously as possible. Their success can blind them to the realisation that scrappy upstarts are quietly rewriting the rules.”[2]

What is a key concept here? Companies that fail due to disruptive competition do so because they are blind to upstarts, their competitors. Effective CI prevents that blindness.

To those can be added the results of several multi-company studies[3]:

In the early 1990s, a study of the packaged food, telecommunications and pharmaceutical industries reported that organizations that engaged in high levels of CI activity showed 37% higher levels of product quality, which is, in turn was associated with a 68% increase in business performance.

A PricewaterhouseCoopers’ study of “fast growth” CEOs reported that “virtually all fast-growth CEOs surveyed (84 percent) view competitor information as important to profit growth of their company.”

A McKinsey study published in 2008 asked executives how their firms responded either to a significant price change by a competitor or to a significant innovation by a competitor: “A majority of executives in both groups [across regions and industries] say their companies found out about the [significant] competitive move too late to respond before it hit the market.”

When you are doing competitive intelligence (CI), you are relying on your intelligence to drive your research and analysis. But your brain, like any other part of your body, needs proper care and conditioning. What follows here and in the next 2 parts are a few notes on what works for me – and for others as well. Your suggestions and comments are, of course, very welcome.

First, let me deal with relaxing your mind.

Look at the things that you do to relax, such as reading and games. I’m a great believer that you should continually change these things. By that, I mean changing the “subject matter” of the material you are reading (or the games that you are playing) for something that’s new and different.

With respect to reading, my practice is to change magazine subscriptions on a regular basis. So I stop reading the Economist when a subscription ends, instead of just renewing it, even though I really like it. Then I start reading another magazine that it entirely different in terms of slant or subject. Think about it. For example, if you regularly read only Bloomberg BusinessWeek try switching to Smithsonian magazine. For The Atlantic switch out to National Review or Biblical Archaeology Review.

This holds true with books. Read mysteries? Try histories. Read archeology? Try psychology. The same is true with games. Do you do crossword puzzles? What about Sudoku? Anagrams?

You are still relaxing but doing it differently. And try doing it, that is the reading, the games, etc., in different places. So your relaxation is still real, but different.

The Wizard of Id cartoon recently featured the Wizard over time being given the “truth”, including milk is good for you, but eggs are bad (at age 6) and later that milk is bad for you, but eggs are good for you (age 100). The strip ends with the profound catch line: ”In all my years, I’ve learned one thing: no one knows what they’re talking about.”[1]

The point is well taken. The Economist’s columnist Lexington recently took on this topic in “When facts are weapons”.[2] He noted, in the political arena (and what is not eventually there) that while some experts are “sincere” in their efforts to explain aspects of the world, others are “partisans in disguise”.

So? Well, for those of us trying to understand an issue of importance when doing our competitive intelligence, we sometimes look for a “report” or “study” to help provide context, background, or just to educate ourselves in a novel area. Be very careful of what or who is the ultimate source of your “facts” or “study”, and, more importantly, why they even active are in that arena of ideas.

In other words, keep in mind two (cynical, but accurate) observations:

“In today’s politics everything is a weapon, with which to club the opposition. Why should facts be different?” Lexington.

“There are three kinds of lies: lies, damned lies and statistics.” – attributed to Benjamin Disraeli by Mark Twain.

One of the most difficult things to accept in competitive intelligence is that just because you think you understand something doesn’t make it so. Specifically I’m talking about understanding and then predicting actions of competitors.

It is absolutely vital to keep in mind that your competitors not only do not necessarily see the world the way you do, they almost certainly do not use the same kind of metrics in making decisions that you do. This makes it very difficult for you, acting as your own analyst, to understand and then predict your competitors’ behavior without significant digging.

A recent article in The Economist[1] referred to a study that highlights just how different individual enterprises can view the world. In its discussion about carbon pricing, the article noted that the study about how major enterprises used carbon pricing in planning capital projects was particularly intriguing. The prices noted ranged from $6.70 per ton of carbon dioxide to over $34 per ton (or over 5 times as high). The article concluded, “[t]hese prices change behaviour.”

They certainly do: the difference in pricing by two companies looking at capital planning in the same competitive environment will result in two different decisions. So always take care to determine your competitor’s perspective before predicting their actions.